Texas home insurers' profits rise, as do their premiums

AUSTIN — Texas home insurance companies saw big gains in their profits in 2013, new financial figures compiled by the state show, even as regulators consider whether to challenge hefty rate increases of Texas’ biggest insurers for this year.

Premium and loss numbers for 2013, released Wednesday, showed that State Farm, Allstate and Farmers significantly improved their bottom lines over 2012. That was also considered a profitable year.

The state consumer advocate argues that premium increases imposed by the three insurers this year are unreasonable. She has urged the insurance commissioner to reject them.

Overall, insurers paid out an average 44.8 percent of their premiums to cover property losses. That was a sizable improvement from the previous year, when companies had to use 54.5 percent of premiums to pay for losses.

A “loss ratio” of 60 percent or lower is considered a good target for profitability. Almost all large companies hit that benchmark in 2013.

The loss ratio does not directly report profit. It does not include agent commissions, administrative costs and other expenses. Statewide, the so-called combined ratio of losses plus expenses was 81.8 percent. That percentage, however, does not factor in earnings on company investments.

Industry spokesman Mark Hanna of the Insurance Council of Texas said the latest numbers are part of a pattern of up and down financial conditions that insurers have experienced in a state with some of the most destructive weather events in the country.

“You are witnessing the roller coaster ride of the losses and profits of insurance companies, which in Texas can change with the direction of the wind,” he said. “Heading into the 2014 storm season, consumers should hope their insurer is financially secure and able to take care of every claim and all its financial obligations.”

State Farm, the largest property insurer in Texas, showed a loss ratio of 40.2 percent. It was one of the company’s more profitable years of recent times. Allstate recorded a 39.3 percent loss ratio and Farmers was at 49.7 percent.

Meanwhile, State Farm is boosting its homeowner rates an average 9.8 percent this year. Allstate has the lowest increase at 6.5 percent, while Farmers has raised its premiums 14.9 percent.

“Big insurance is grabbing with both hands,” said Alex Winslow of Texas Watch, a consumer group active in insurance issues. “It is the same story year after year after year. Prices keep skyrocketing, but the coverage in most policies has been slashed.”

“What more information do they need?” Winslow asked. “The insurance commissioner should heed the call to reject the latest round of excessive rate hikes and force these big insurance companies to justify their prices.”

Patti Kelly, a spokeswoman for State Farm, said the insurer looks at long-term claim trends over a period of years when setting rates.

“Years with less catastrophe activity offset the years when our customers experience millions of dollars in weather-related damages,” she said.

While last year was a good year, Kelly said the company hit a rough period between 2008 and 2012 when it paid out $1.11 for every dollar collected in premiums to take care of claims and business expenses.

“We must maintain our company’s financial strength, so we can be there for our customers when they need us,” Kelly said.

Last year, according to the insurance department, companies collected nearly $6.8 billion in homeowner premiums from their policyholders, while paying out just more than $3 billion for insured losses.

In 2012, insurers collected $6.1 billion and paid out $3.3 billion for losses. That meant that last year insurers had nearly $1 billion more in profits and funds than they had in 2012 to cover other expenses such as agent commissions.

Under state law, auto and home insurers in Texas can raise rates once they have notified the insurance department. The agency reviews all rate changes and can challenge any it considers excessive. But such challenges are rare.

A survey by the National Association of Insurance Commissioners in December indicated that Texas has the third-highest homeowner rates in the nation. Only Florida and Louisiana were higher.

Follow Terrence Stutz on Twitter at @t_stutz.

LOSS RATIOS AND INCREASES

Texas’ three largest home insurers all had a good year in 2013 but boosted rates for this year. Here’s a look at their loss ratios, which measure the share of premiums insurers pay out in claims, and rate increases. A loss ratio of 60 percent or less is considered a good benchmark for profitability:

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